Prosecuting on principle

This week, Compliance Week writer Neil Hodge wrote an article about how the U.K. Serious Fraud Office was going ahead with a fraud case against Barclay's for a shady financing deal it made with Qatar during the 2008-2009 financial crisis. Rather than seek a government bailout, Barclay's secured a massive loan from Qatar instead, but in so doing, it never disclosed it fully to investors, giving a false idea of the bank's overall financial health. And there was also the matter of a large loan back to some of its Qatari creditors, made on terms that simply were not within the limits of U.K. financial law. Bottom line? Barclay's committed a major foul, and the Financial Conduct Authority spent a long time looking at it, deciding how to proceed. Eventually, it handed that baton over to the Serious Fraud Office once it became clear that in the eyes of Her Majesty’s government, this wasn’t a case of a company coloring a little bit outside of the lines. This was a conspiracy to commit major shareholder fraud, at the very least.

And so, we find ourselves some decade or more after the fact, with a major bank facing serious criminal charges on activities that when they happened, involved people who are no longer with the organization. When and if Barclay’s is hit with a substantial penalty over this Qatar deal, critics note that it will hurt shareholders who had nothing to do with this scheme, and who maybe weren’t even shareholders when the deal went down. Aren’t they going to get hurt for a crime they didn’t commit? Moreover, isn’t it ancient history already? Barclays did this deal specifically to not take a government bailout. If the issue is a company’s misdeeds hurting the public, how can that be the case here, where the U.K. taxpayer ultimately wasn’t asked to pay for a bank that had gotten itself into trouble? This surely seems like a case of a victimless crime—or at least one whose victims had all scattered to the winds a don’t seem to be claiming any hurt over it. So why bother?

It’s a good question, but ultimately, a moot one. And one that is almost insulting to the very concept of compliance and regulatory enforcement. Look, nobody likes to be pressed by the authorities. And few can be counted on to simply throw up their hands and surrender themselves to the will of the authorities without harboring some kind of wish that maybe those with the power to inflict punishment would show some mercy, or perhaps look the other way for once. That’s just natural. But to suggest that maybe a decade-old financial crime is no longer worthy of pursuit doesn’t hold much water.

Here’s the thing: in financial services, there is no such thing as a victimless crime. That is true anywhere the law applies, but it’s especially important that we remind ourselves of this in finserv, where the facelessness of so much business there makes it easy to imagine that even is something has been done outside of accordance with the law, no real harm has been done to merit enforcement. This simply is not true, however. Every misdeed affects the real world. Every misdeed has a ripple effect. Even if the only thing to come from a shady deal done ten or twelve years before is that it taught some folks that yes, you really can get away with breaking the law, that is itself damage enough to the system to merit authoritative intervention. When we speak of culture and how it matters, this is very much a part of that. If we cannot be expected to hold each other to the same standard to which we hold ourselves, then there is no hope that our collective dedication to the profession and discipline of compliance, governance, and ethics can indeed improve how we do business.

So yes, it does matter that a crime be prosecuted on principle. Principle is, in fact, the very best reason to do so. Principle is what transcends the easiest and most pressing reminders for why we live by our laws. Sometimes, those reasons are not so easy to see, but no less important. That is when principle becomes our guide. And principle, as any ethics and compliance officer will attest, is a valuable guide, indeed.